Chapter

13

Global Services

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved

 Outline
Characteristics of Services
Services as Products
Service Globalization Potential
Foreign Entry Modes of Services
Service Quality and Cultural Differences
Two special cases: Fast Food and Professional Services
Takeaways.
 The Service Industries
• Accounting • Insurance
• Advertising • Investment banking
• Banking • Leasing
• Broadcasting • Legal Services
• Computer services • Lodging
• Consulting • Media
• Data processing • Reservation systems
• Design & engineering • Restaurants
• Distribution • Tourism
• Education • Telecommunications
• Entertainment • Transportation
• Health care • Utilities
 Characteristics of Services

• INTANGIBILITY – you cannot easily touch a service

• HETEROGENEITY – the service is not exactly the same

each time

• INSEPARABILITY – services are produced when they are

consumed

• PERISHABILITY – you cannot store a service

 The Service
“Product”

CORE SERVICE: IS WHAT THE BUYER IS REALLY BUYING. FOR

EXAMPLE, AN OIL CHANGE AND TUNE-UP FOR YOUR CAR
PROVIDES TROUBLE-FREE OPERATION.
FORMAL SERVICE PACKAGE: SPECIFIC SERVICES OFFERED TO THE
CUSTOMER INCLUDING PRICE, SERVICE FEATURES, THE
PACKAGING, GUARANTEES.
AUGMENTED SERVICE: THE TOTALITY OF THE BENEFITS A
CUSTOMER RECEIVES OR EXPERIENCES THEY HAVE WHEN
BUYING THE PRODUCT.
 The service as a “product”
Provider’s
behavior
Augmented
service
Features

Price Packaging
Physical Provider’s
surroundings Generic benefits appearance
Warranty After-sales
support
Quality

Formal
Core Brand image service package
service
 Service Globalization
Potential
Three factors that influence the globalization
potential of services
•Stage in the Life Cycle – potential is highest during the maturity
stage because then the service is fully developed and can be
blueprinted.
•Infrastructure barriers – service applicability depends on
availability of infrastructure, as when, for example, warehouse
stores require customers to take home large items in their own
cars.
•Idiosyncratic Home Markets – special regulations induce
domestic service providers to develop practices that are not
applicable elsewhere, as when, for example, advertising
agencies in Japan produce television programs whose
sponsorship the agency controls.
Keys to Successful Service Globalization

Distilling exactly what the key features of the

1
product/service concept are

2 Reasonable similarity to the home country situation

Localization of the key features to another environment

3
while still maintaining the FSA's of the firm
The Four Service Entry Modes
1. EXPORTING – where services can be transferred via
communications media or personal travel to countries

2. LICENSING – when local involvement is important, where

the service can be standardized (e.g. franchising)

3. STRATEGIC ALLIANCES – when a local presence is

necessary but where government regulations are
restrictive to foreigners

4. FOREIGN DIRECT INVESTMENT – when a local presence

is feasible, where foreign ownership is permitted
 Foreign Entry of Services

Tourism exports provide an illustration of foreign trade in

services, as when Americans visit France.
A franchising expansion by McDonalds provides an
illustration of a licensing mode of service entry.
In marketing research, it is common to strike up alliances
with research firms in other countries to be able to provide
global coverage to clients.
In consulting services, foreign direct investment is
sometimes necessary, as when Price-Waterhouse opens an
office in Brussels.
 The Local Marketing of a Service

1. MARKET SEGMENTATION – typically new services from

abroad target very specific segments or audiences
2. POSITIONING – the customer benefit of the service needs
to be identified clearly to position the service accordingly
3. PRODUCT LINE – a service provider that fits the local
infrastructure
4. BRANDING – is always important given the intangibility of
services.
The Local Marketing of a Service (cont’d)

5. PRICING – competitive parity, costs, demand, and the

value of time spent by customers must be factored in
6. PROMOTION – many professional services have
restrictions on promotional activities that differ across
countries
7. DISTRIBUTION – since a service is produced &
consumed at the same time, service delivery is identical
to service production; consequently, distribution
becomes the “critical incident” or “moment of truth.”
 Service Quality

CRITICAL INCIDENTS/MOMENTS OF TRUTH – the period of time

during which an individual consumes the service
Desired Service – highest or ideal quality

Predicted or Expected Service – lies somewhere

between the desired & the adequate service

Adequate Service – forms the lower limit below which

the service quality is unacceptable

Perceived Service –must lie between the desired & the

adequate service levels to make sure customer is
satisfied
 Service Quality:
The Gap and the Zone of Tolerance
Desired Service
Surprise

(Perceived Service
high)
Predicted/Expected Zone of
Service tolerance
Acceptable

Adequate
Service
Dissatisfaction Performance
Gap
(Perceived Service
Inadequate Service
low)
Culture and Service Quality

•Since services are intangible, service quality is more

difficult to quantify, allowing for a more subjective
view
•Different cultures have different habits and
preferences and therefore different definitions of
service quality
•So culture affects perceived service quality &
customer satisfaction strongly
•And what is considered high service quality in one
country is not necessarily high in another country.
 Personal Service Quality:
Differences in Complaint Handling
Americans Japanese

• Asking • Listening

• Expressing doubt • Expressing sympathy

• Explain what cannot be done • Explain what can be done

• Defending company policy • Apologize for company policy

• Responsibility of the buyer • Responsibility of the seller

• “We’ll fix it, but…” • “I’m very sorry”

• Low customer satisfaction • High customer satisfaction

Close-up: Fast Food Franchising
E.g. McDonalds, KFC, Wendy’s, Dunkin Donuts, Pizza Hut

• Has been growing in the last two decades

• Mitigates risk of financial exposure in other country markets
• Common method of penetrating new markets, leveraging existing
brand names
• Firms provide pre-planning tools to entice local investors

ADVANTAGES – allows franchisee to start a business with limited

capital, benefiting from local experience of franchiser
DISADVANTAGES – franchiser’s ability to dictate many facets of
the business may seem overly intrusive
Close-up: Professional Services

E.g. lawyers, doctors, accounting firms

• Professional services are expanding globally despite

idiosyncratic local regulations
• A gradual move toward making regulations more
homogeneous benefits this expansion (e.g. EU certification of
lawyers & doctors)
• Accounting standards are converging, allowing accounting
firms to go global, with clients outside their home countries
• Increased sophistication in creating strategic alliances aid
global service expansion
 Takeaway

Services have become an increasingly important part of the

economy, especially in developing countries.
Like manufacturers of products, service providers are turning
increasingly to foreign markets for growth.
 Takeaway

Services have characteristics that make foreign expansion

different from products. Intangibility of many services makes
the mode of entry different from physical goods.
 Takeaway

Globalizing a service means identifying what the core

advantages of the service are & whether they can be
reproduced in a foreign market.
This usually means that foreign expansion of services occurs
in the mature life cycle stage.
 Takeaway

The barriers to entry for services tend to be greater than for

goods, because of restrictive government regulation & the
need for localized delivery.
 Takeaway

Because of the human factor, the way services are marketed

locally & the trade-off between standardization & adaptation
hinge very much on cultural factors.